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Is the UK the world's next tax haven?

The UK government's commitment to increasing the competitiveness of the UK tax regime will eventually lead to another reduction in the corporation tax rate (to 20% in 2015) and in 2014, the trend of marketing the UK as “open for business” is anticipated to continue. Taxand UK questions will the UK be the world's next tax haven?

2014 will be the year to be a multinational enterprise in the UK. Corporation tax rates are on the decline to the lowest within the G8, and general economic growth has returned. The UK is gradually building a reputation as a modern tax haven, particularly when considering generous recent measures brought in to attract key industries to the UK, including further tax savings for the film, gaming, fracking and tech industries, to name only a few. The UK is considered to be a low-risk planning hub in the context of reputational concerns.

The increase in competitiveness within the UK is, however, shaping a landscape equally dominated in recent months by the Base Erosion and Profit Shifting (BEPS) initiative from the OECD. The importance of BEPS will become clear throughout 2014 as multinationals adopt anticipated measures of global governments and legislative policy begins to become apparent at a national level. As many of the key policy writers for BEPS came from the UK’s HMRC, certain components which may prove tougher to reconcile with comparatively inward-looking tax regimes, such as the Chinese and American systems, are modeled on those already implemented in the UK. 2014 is therefore likely to see a further uptake in corporations seeking the UK as a relatively “safe haven” from BEPS uncertainty, as the UK’s BEPS response is already visible. Indeed, this feature of the UK’s tax system, along with other recent changes (including wide-reaching CFC reform) has encouraged numerous high profile firms to relocate (in some cases back) to the UK and to seek advance rulings with the UK tax authorities on key tax issues.

The trend for increased corporate activity in the UK has been further demonstrated by the sustained high level of Advanced Pricing Agreements (APAs), and ever-increasing numbers of Advanced Thin Capitalisation Agreements (ACTAs) being taken out with HMRC in recent years – 2013 being no exception.

Taxand's Take

While 2014 will be the year when the UK government’s initiatives to attract more multinationals onto British shores will likely pay-off, HMRC is certainly not content with reduced corporation tax revenues eating into fiscal budgets. Despite considerable scope for the new tax initiatives to drive significant inward investment, and associated tax revenues, into the UK, it is anticipated that 2014 will balance the decreasing corporation tax revenues with significantly increased capital taxation relating to residential property.